ISAsAug 23 2018

The Care Isa is not the answer to social care

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The Care Isa is not the answer to social care
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According to a top secret memo I found left on the 5.15 to Brighton, the Tories plan to launch what they’re going to call a Debt Isa.

The memo was penned by Epaphroditus Self-Serving, a 19th-century Tory.

It concludes: “If we make borrowers put up to £20,000-worth of debt into a tax-free Isa then we can ensure that loan companies that provide an important social service don’t have to be lumbered with the additional administrative burden of paying tax on the extra charges and interest they load on feckless debtors.”

His view is that such a move would be good for the UK economy and, as he reveals in the memo, the fact that he invests heavily in the lenders did not affect his thinking one jot. 

He claims the proposal already has considerable support among other leading Tories who, coincidentally, also invest in such lenders.

So will we see a Debt Isa being launched this year? Of course not. It is a preposterous idea that I just made up. But it is no more preposterous that the so-called Care Isa which is apparently being considered by the government.

We all know there is a long-term care funding crisis. Many more people are likely to need to find cash in their later years to pay for care. But very few are preparing for that potential cash crisis.

Just one in ten people aged 55 or over has money stashed to pay for care in old age, according to research published earlier this month by consumer group Which?

As Chris Knight, boss at Legal & General Retail Retirement puts it: “It is all too easy to think that we won’t need the support of social care in the future, that ‘it won’t happen to me’, but many us will either need to be cared for or care for a loved one at some point in our lives.”

The government is well aware of the problem and the Department of Health and Social Care will publish a green paper in the autumn with some proposed solutions.

A spokesman for the department said: “It will set out our plans to reform the social care system to ensure it’s sustainable for the future. In developing the green paper we are looking at how we can support people with the costs of their care in a way that is fair to all generations.”

News about the so-called Care Isa which could form part of the green paper were leaked to a Sunday newspaper in a kite-flying exercise. It is what the government does when it it is not sure about a policy. 

If the kite prompts cheers, then the policy is likely to be adopted. If it gets jeers, then the proposal will be quietly forgotten. Let us hope it is the latter when it comes to this particular half-baked idea.

How would the Care Isa work? It would be a tax-free personal savings scheme that it is hoped would encourage people to save to cover the costs of their care in later life.

The incentive would be that no inheritance tax would fall due on any money left in the Isa when people die. At present any money left in an Isa is automatically rolled into someone’s estate, which is potentially subject to inheritance tax at 40 per cent.

By scrapping the inheritance tax on the accounts, the government hopes older people would hold on to their savings in the Isa. People would then have the cash to pay for nursing homes and round-the-clock care while knowing that any money left over could be handed to children or grandchildren with no tax liability.

Former pensions minister Baroness Ros Altmann was vocal in supporting the idea.

She wrote: “At last, people may set money aside, in advance, to cover future care costs (currently they do not think about it), rather than suddenly having to find money at the very time they are most vulnerable.”

But another former pensions minister was less supportive.

Sir Steve Webb, now director of policy at Royal London, said: “It is very difficult to see how a Care Isa would make a meaningful contribution to tackling the social care funding crisis. The latest figures suggest that 19 out of 20 estates pay no IHT, suggesting that an IHT break would be irrelevant for most savers."

Tory MP Sarah Wollaston, who chairs the Commons health and social care select committee, was more scathing.

She said the plans were “a colossal mistake” that would only serve as a solution “for a small minority of wealthy people”. In short, it is another proposal that would only help the wealthy. 

What we desperately need is for someone high up in the government to start coming up with policies to help the masses, not just their wealthy mates. And what we do not need is another ISA to confuse normal folk even more.

Simon Read is a freelance journalist